The founder and investor agree on dual class stock ("common" vs "preferred") as part of the investment terms. Nothing stops a founder from incorporating with si

The founder and investor agree on dual class stock ("common" vs "preferred") as part of the investment terms. Nothing stops a founder from incorporating with single-class share structure, but the structure exists and is standardized for good reason. Mainly, it gives the board checks and balances against the CEO so that they can force the CEO to honor their promises to the investors. In addition to "preferred" vs "common", each "Series" of preferred shares is subject to their own terms, which are established in the financing contracts per the negotiated terms of the financing. Come to think of it, this preferential treatment might be why the shares are called "preferred". Pre-seed and seed is mostly standardized but beyond that the terms of each Series of stock are custom negotiated and that's where you see things like liquidity preference, vesting, anti-dilution, dividends, rights, board seats and other control clauses, etc. If a founder were to simply say "everyone is treated the same, we all get common" that would impact the valuation and dilution, as the preferred structure is a factor in the price. In a way, the founder is saying "i'm going to give you preferred to remove your perceived downside risk so that I can keep more of the company"